Markets edge higher as New Year rally continues

European markets have ended the week on a - fairly - positive note, as the January rally continues despite some mixed economic news during the day, not least the UK industrial production figures and a widening US trade gap.

• The FTSE 100 has finished 20.07 points or 0.33% higher at 6121.58

• Germany's Dax is up 0.09%

• France's Cac has climbed 0.08%

• Italy's FTSE MIB is 0.29% higher

• Spain's Ibex is 0.53% better

• But the Athens market has dipped 0.52%

Meanwhile the Dow Jones Industrial Average is currently up 0.06%.

And with that it's time to close up for the evening. Thanks for all your comments, have a good weekend and see you back here on Monday.

5.37pm GMT

Greece delays decision on Hellenic Postbank future

Greece has delayed a decision on the future of struggling lender Hellenic Postbank from today until next week, according to Reuters, after potential buyers pulled out:

Efforts at finding a buyer failed when three of the country's biggest banks withdrew from the race, leaving authorities no choice but to split the bank in two and run its healthy assets as a stand-alone entity.

The Greek central bank had been expected to announce its plan for the bank on Friday, but delayed the decision to next week after European Union and International Monetary Fund lenders asked to study its business plan, a banker familiar with the matter said.

"The troika asked for a few days to assess the business plan of the 'good' bank," the banker said, referring to the trio of the EU, ECB and IMF. The bank's non-viable assets are expected to be liquidated.

Striking Hellenic Postbank employees gather in front of the occupied bank headquarters in the Athens to protest against the planned privatization of the state-owned institution. Photograph: AFP Getty Images/Louisa Gouliamaki

5.30pm GMT

Ireland has made strong progress, says S&P

Standard & Poor's has reaffirmed its BBB+ long term rating for Ireland, at the same time as keeping its negative outlook. The agency said:

The Irish government has made strong progress in stabilising its fiscal position, although risks associated with its high deficits and debt burden, and the challenge of complying with the EU/IMF fiscal adjustment program, still persist.

We consider that the economic outlook for Ireland is also improving, although we see significant downside risks given its reliance on exports for its recovery.

The negative outlook reflects our view of prevailing downside risks to financial sector stability and the government's balance sheet given high net public borrowing needs, and uncertain growth prospects for the domestic economy.

3.15pm GMT

The institute said:

[We interpret] the term “recession” to mean a period when output is falling or receding, while “depression” is a period when output is depressed below its previous peak.

Thus, unless output turns down again, the recession is over, while the period of depression is likely to continue for some time. We do not expect output to pass its peak in early 2008 until 2014.

The profile of recession Photograph: NIESR

But despite "the recession is over" could we be heading for a triple dip? Some think so:

Danny Blanchflower (@D_Blanchflower)

NIESR forecasts GDP fell 0.3 Q4 hence 0.0% growth for 2012 which means triple dip - sadly govt still has no growth plan & no clue what to do

UK economy shrank in fourth quarter - NIESR estimate

The UK's economy showed virtually no growth at all last year, according to the latest report from National Institute of Economic and Social Research.

The thinktank estimated it shrank by 0.3% in the final quarter of 2012, which tallies with a recent batch of poor industrial output and construction figures. This compares to a rise of 0.1% in the third quarter, but this was put down to "distortions" such as the London Olympics.

Updated at 3.09pm GMT

1.54pm GMT

The US trade figures are "absolutely awful", according to Rob Carnell of ING Bank. He said:

The deficit widening to $48.7bn went in completely the opposite direction to most forecasters assumptions, and, moreover, was a very big swing by trade data standards.

We cannot blame this swing on the petroleum sector – the petroleum balance was almost unchanged at -$10.7bn from -$10.97bn in October. Neither was this mainly a result of exports, which picked up 1% month on month, to $182.6bn.

The damage was instead cause entirely by imports, and in particular, by goods imports, which soared, from $186.8bn to $195.0bn. Of these goods imports, big positive swings are most obvious in consumer goods and to a lesser extent in automotive goods.

What is slightly odd about this is that although you could read this as a positive spin on domestic demand sucking in more imports, the retail figures over the end of 2012 have actually been pretty soft, which suggests that although there may be an offset to the drag on imports in the fourth quarter of 2012, it may have led to an unwarranted inventory build up, and this may weigh on growth in the first quarter of 2013, at a time when payrolls tax expiry is already weighing on growth.

1.45pm GMT

US trade gap jumps

Across the Atlantic and some poor trade data from the US.

The trade deficit unexpectedly grew 16% to $48.7bn in November, thanks to a jump in imported consumer goods. Analysts had been looking for a fall to around $41bn. Instead they got the worst number since April.

1.24pm GMT

Merkel says Cyprus must reform

Cyprus must pursue economic reforms but deserved "solidarity" from the European Union, Angela Merkel has said.

Joining the chorus of politicians commenting on the country's financial problems, the German chancellor made the comments as she arrived for the meeting of centre-right leaders. (HT Reuters)

German chancellor Angela Merkel and Cyprus' Nicos Anastasiades at her arrival at the Limassol summit. Photograph: Reuters/Jamal Saidi

And are there signs of cost cutting among EU leaders?

Matina Stevis (@MatinaStevis)

Finland'a Katainen hitched a ride on Merkel's flight to Cyprus. Plane-pooling an option for EU leaders in austere times?

Developments in Cyprus -- Finnish prime minister Jyrki Katainen has declared that he would support a bailout for the country, but suggested we might need to get next month's election out of the way first.

Ireland's Enda Kenny is also in Cyprus for the EU leaders meeting (see previous post). He's told the press pack that the Cypriot bailout might have to wait until a new government is installed after next month's elections:

European leaders gather in Cyprus

With impeccable timing, centre-right politicians from across Europe are gathering in Cyprus today.

The meeting of the European People's Party (EPP) begins at 11am GMT, or 1pm EET, in Limassol. German chancellor, Angela Merkel, and European Commission President, Jose Manuel Barroso, are among those attending

There's a live feed from the event here, which just showed Barroso arriving

Jose Manuel Barroso Photograph: EPP

Yiannis Mouzakis (@YiannisMouzakis)

Are they so inept that they will let a €17B bailout break a country that is 0.15% of #eurozone GDP and revive the crisis, I wonder

Why Cypriot bondholders may take hit

At €17bn, Cyprus's demands aren't huge compared to the potential cost of bailing out Italy or Spain.

But it's roughly equal to the country's annual economic output – illustrating the dire state its banks are now in.

European leaders are desperate to avoid a repeat of the Greek debt haircut. Analysts, though, suggest there may be no way to avoid imposing losses on the private sector --called a Private Sector Involvement (PSI).

Nicholas Spiro of Spiro Sovereign Strategy commented:

Even a bank-focused bailout would cripple the sovereign given the small size of the economy while an EU taxpayer- financed rescue of Russian oligarch-funded Cypriot banks would prove extremely controversial.

All this strengthens the case for a ’tiny PSI’, one which eurozone policy makers would hope would slip under radar.

That's why the cost of insuring Cypriot bonds against default jumped this morning (see 9.06am) - traders see a greater chance of a debt restructuring.

Why Cyprus is in trouble

• Cyprus is seeking a bailout of around €17bn, including at least €10bn to recapitalise its banking sector.

•The negotiations over Cyprus's bailout request have stalled over the issue of economic reforms and privatisations.

The 'Troika' of international lenders (the IMF, the EU and the European Central Bank) insist that Cyprus must sell stakes in some state assets in return for help. That has been rejected by outgoing communist president Dimitris Christofias.

• German MPs are concerned that a bailout would benefit money-launders who allegedly hold huge sums in Cypriot banks. They have threatened to veto any aid package.

• A new president will be chosen in next month's elections, and there are rumours that the bailout will be delayed until March.

• Cyprus, though, insists that it is a victim of Greece's own crisis (Cypriot banks were big holders of Greek debt). It says claims of 'dirty money' in its banking sector are unfair, and simply wants a fair deal from its European allies.

9.06am GMT

Cyprus CDS prices jump

The cost of insuring Cyprus's debt against default has jumped this morning, as traders react to Moody's triple-notch downgrade (see 8.07am)

The credit default swap on Cyprus's five-year bonds jumped by 111 basis points to 1,139bp, according to Markit.

That means it would cost €1.139m per year to insure €10m of five-year Cypriot debt against default, implying a very high risk of a 'credit event'.

Updated at 9.31am GMT

8.56am GMT

Japan's new stimulus package

Elsewhere in the world economy, the Japanese government has agreed its eagerly anticipated stimulus package.

It is committing over 20 trillion yen (£138bn) to a new stimulus package that (it hopes) will drag Japan out of recession. The prime minister, Shinzo Abe, insisted the plan would get results:

Unfortunately the previous administration failed to work out how to boost growth and expand the economic pie.

It is vital that we have an economic strategy that can create jobs and raise incomes to sustain growth.

Japan has seen countless stimulus packages since its financial crash of the late 1980s, and none have really worked.

This time, Tokyo is also suggesting that the Bank of Japan should widen its mandate to include Japanese unemployment levels - which could give it the mandate to be more aggressive. In response, the yen has fallen to a new two and half-year low against the dollar overnight.

8.34am GMT

Rehn: No Cyprus haircut

EU Commissioner Olli Rehn has declared that there is no chance of a debt restructuring for Cyprus.

Rehn, the European Economic and Monetary Affairs Commissioner, told the German business daily Handelsblatt that:

A haircut is not an option for us.

Brussels had a tough lesson last year during the €100bn Greek debt restructuring, which dragged on for months. Officials have indicated that the experiment (driven by a desire for private creditors to share the pain) would not be repeat if at all possible.

We think that there's a higher likelihood that the government may default outright or press for a distressed exchange.

In its official statement, Moody's warned that Cyprus's government would face more demands from its banking sector, which has suffered heavy losses on its Greek bonds.

The key driver of today's rating action is the anticipated rise in the Cypriot government's debt burden, driven principally by the increased recapitalization needs of its banking system following distressed exchanges on Greek government debt and rising delinquencies on loans to Greek and Cypriot obligors.

Cyprus's financial problems have been on the back burner for months. With an election just over a month away it is now becoming more of a issue - and a reminder that the eurozone crisis isn't over, despite recent progress.

I"ll be watching for more developments on Cyprus in the hours ahead, along with other developments in Europe and beyond....